Do You Know When To Trade And When Not To Trade?
Increasingly people are choosing to trade from home due to the potential earning
power that trading financial securities gives them and due to the fact that 'a job for life' is becoming an increasingly rare thing, even in good economic times.Also there are no bad economic conditions for traders obviously as traders can make money in up or down markets.
There are many different circumstances which determine whether or not you should be trading for real, not just when you need to paper trade. There is a lot said elsewhere about paper trading your trading system first before dipping your toe in the markets with actual money.
However, your specific trading system and and your recent performance in the markets also influences whether or not you should be trading.
So overall the aim of this article is to discuss when it's wise to 'have a position,' in other words to be trading the markets and when it's best to be out of the markets.
If you're learning a new trading system that you or others have back tested already, you've probably heard that it's best to paper trade it first yourself before committing your money to real trades based on that system.
Paper trading new systems is a good idea but you need to realise that you will not be exposed to the emotions of real trading of fear and greed and the occasional slippage, meaning worse price 'fills' which are the prices that you actually get to place your trades at under real trading.
So while paper trading is a good idea for a while, it has its limitations and you only really learn about your system when you trade it for real as this really focuses your attention. Next we'll look at the influence your trading system has as to whether you should be trading.
If you are placing long term trades that are almost like investments you may be looking at the weekly charts to determine the trend and the daily charts to determine your precise market entry level.
Alternatively you may decide to day trade, moving in and out of the markets often.
However, regardless of your frequency of trading you should make sure that you follow your system with discipline and only trade based on your system or method's setups.
Also, try not to second guess yourself, but instead pull the trigger and trade immediately when your system says. Next we'll examine the influence that your recent trading performances should have on your frequency of trading.
Many traders at some point in their careers overtrade, risking too much per trade and placing 'revenge trades' very quickly after any losing trades, trying to claw back any losses immediately. If you can learn not to do these things from an early stage this can have you on the path to wealth far quicker.
So after a losing trade or two it's very wise to give yourself a bit of time out of the markets to gather your thoughts, analyse your trades to see your reasons for entry, look back at what happened during the trade and see why you exited the trade.
This includes looking at whether you let the trade run beyond your initial stop loss that you placed which is a big mistake many beginners make.
After doing something completely different for a while you can start planning your next trade.
So to summarise, it's best to paper trade new systems for a while but you can only really learn from trading for real and when you do, stick to your stystem with discpline.
Also, if you don't overtrade in the first place and only place trades that you can afford to lose of two to five percent of your trading capital then you will be in the game for longer after a losing streak and ready to take advantage of any excellent opportunities as they arise.
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